China Railway Debuts at Low End of Expectations

Shares in China Railway Group, whose Shanghai IPO attracted a record 3.383 trillion yuan ($457 billion) in subscriptions, opened 56 percent higher in their debut on Monday, near the low end of analysts' forecasts.

Local-currency A shares in the world's third-largest construction contractor opened at 7.5 yuan, up from their initial public offer price of 4.8 yuan, buoyed by its near monopoly of China's rapidly developing railway construction sector.

They fluctuated sharply in the first 20 minutes of trading, hitting an intraday high of 8 yuan and a low of 7.21 yuan. Five analysts polled by Reuters last week forecast had given a wide range of forecasts for the shares' debut, from 7.2 to 8.6 yuan.

"China Railway's debut was hurt by the recent weak stock market," said construction industry analyst Han Qicheng at Guotai Junan Securities. "But its leading position in China's construction industry means it won't have much room to fall from its opening price, and it could even climbmoderately later," he said.

China Railway raised 22.44 billion yuan in mainland China's eighth-biggest IPO and another $2.5 billion from a Hong Kong IPO, which will begin trading on Friday.

The combined $5.5 billion IPO was the fifth-largest this year in the Greater China area, according to Thomson Financial data. It also ranks as the fourth most popular IPO ever for Hong Kong individuals.

Analysts said a lackluster debut would be a bad omen for the Shanghai and Hong Kong markets, which have seen steep losses over the past few weeks.

The Chinese government gives the lion's share of its railway construction work to China Railway Group and state-owned China Railway Construction, which is expected to go public next year.

China's railway investment has lagged economic growth of at least 10 percent a year since 2002. Beijing has now budgeted 1.2 trillion yuan in 2006-2010 for rail investment, more than four times the figure for the previous five years.

The Shanghai debut will also be an important reference for China Railway's Hong Kong-traded H shares when they debut on Friday.